TO BE PUBLISHED IN THE OFFICIAL REPORTS

OFFICE OF THE ATTORNEY GENERAL State of California

JOHN K. VAN DE KAMP Attorney General

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: OPINION : No. 85-701 : of : OCTOBER 8, 1985 : JOHN K. VAN DE KAMP : Attorney General : : CLAYTON P. ROCHE : Deputy Attorney General : :

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THE HONORABLE JAY R. STROH, DIRECTOR, DEPARTMENT OF ALCOHOLIC BEVERAGE CONTROL, has requested an opinion on the following question:

May the operator of a commercial enterprise who does not have an alcoholic beverage license legally offer and provide "complimentary" alcoholic beverages to any interested adult guest, customer or passenger of the business or service, without specific charge while at the same time charging for the product provided or the services rendered?

CONCLUSION

The operator of a commercial enterprise who offers and provides complimentary alcoholic beverages to any interested adult guest, customer or passenger of the business or service while at the same time charging for the product provided or the

1 85-701 service rendered will be deemed to have "sold" the alcoholic beverages, thereby necessitating an alcoholic beverage license.

ANALYSIS

The background for this opinion request is succinctly set forth by the Director of Alcoholic Beverage Control, as follows:

"Over the past several years, and with increasing frequency, the Department has been called upon to give an opinion as to whether or not an alcoholic beverage license is required where a business enterprise provides 'complimentary' alcoholic beverages to adult patrons or guests of the business.

"The proliferation of 'bed and breakfast' inns, limousine, bus and air charter services publicly advertising free alcoholic beverages as a regular part of their service has reached the point where we believe an authoritative opinion is required.

"The types of businesses involved are usually not qualified to hold an on-sale license under current law because they do not operate as a bona fide eating place or club (bed and breakfast inns) or they do not have a specific location or premises (limousine and bus services). The businesses in question do not specifically charge anything extra for those guests or passengers who elect to consume the alcoholic beverages. They commonly advertise that the beverages are 'complimentary' . . ."1

Article XX, section 22, of the California Constitution provides in part:

". . . [i]t shall be unlawful for any person other than a licensee of said department [of Alcoholic Beverage Control] to manufacture, import or sell alcoholic beverages in this State."

The Alcoholic Beverage Control Act (section 23000 et. seq of the Business and Professions Code)2, which implements Article XX, provides in section 23300 that:

1 We interpret the word "guest" as used in the question presented and the background summary to mean a paying guest, that is, one whose connection with the business enterprise is not just social. 2 All section references are to the Business and Professions Code unless otherwise indicated.

2 85-701 "No person shall exercise the privilege or perform any act which a licensee may exercise or perform under the authority of a license unless the person is authorized to do so by a license issued pursuant to . . . [the Act]"3

Violation of this provision is a misdemeanor. (§ 23301.)

The Alcoholic Beverage Control Act (hereinafter "Act") presently provides for thirty-six types of licenses. For our purposes herein we are interested only in "on-sale" licenses, that is, those which are issued for on-site consumption of alcoholic beverages. These include on-sale beer licenses, on-sale beer and wine licenses and on-sale general licenses. These may be issued in connection with bona-fide public eating places or merely with respect to "public premises." Special on-sale licenses are also provided for boats, trains and scheduled airlines, but not for tour buses, limousines or charter services. Finally, on-sale licenses may also be issued to clubs, hospitals and convalescent homes. (§ 23320.)

The issuance of an on-sale license grants the licensee the privilege of selling alcoholic beverages within the limits of his license. Thus section 23396 provides:

"Any on-sale license authorizes the sale of the alcoholic beverage specified in the license for consumption on the premises where sold. No alcoholic beverages, other than beers, may be sold or served in any bona fide public eating place for which an on-sale license has been issued unless the premises comply with the requirements prescribed in Section 23038, 23038.1, or 24045.1." (Emphasis added.4/

3 "Person" is broadly defined to include any individual or any type of business association. (§ 23008.) 4 Section 23038 is the basic section defining a bona fide public eating place. It provides: "'Bona fide public eating place' means a place which is regularly and in a bona fide manner used and kept open for the serving of meals to guests for compensation and which has suitable kitchen facilities connected therewith, containing conveniences for cooking an assortment of foods which may be required for ordinary meals, the kitchen of which must be kept in a sanitary condition with the proper amount of refrigeration for keeping of food on said premises and must comply with all the regulations of the local department of health. 'Meals' means the usual assortment of foods commonly ordered at various hours of the day; the service of such food and victuals only as sandwiches or salads shall not be deemed a compliance with this requirement. 'Guests' shall mean persons who, during the hours when meals are regularly served therein, come to a bona fide public eating place for the purpose of obtaining, and actually order and obtain at such time, in good faith, a meal therein. Nothing in this section, however, shall be construed to require that any food be sold or purchased with any beverage."

3 85-701 The terms "sell", "sale" or "to sell" are defined in section 23025 of the Act as follows:

"'Sell' or 'sale' and 'to sell' includes any transaction whereby, for any consideration, title to alcoholic beverages is transferred from one person to another, and includes the delivery of alcoholic beverages pursuant to an order placed for the purchase of such beverages and soliciting or receiving an order for such beverages, but does not include the return of alcoholic beverages by a licensee to the licensee from whom such beverages were purchased." (Emphasis added.)

Accordingly, the issue presented herein is whether the operators of various businesses who provide "complimentary" alcoholic beverages to their adult guests or customers are in fact "selling" those beverages. The resolution of this issue would appear to turn on the question whether the "complimentary" beverages are in fact "free" or whether they are in reality purveyed for a "consideration."

Our research discloses no California cases nor opinions of this office directly in point. However, a number of out-of-state cases are helpful. Thus, in New York State Liquor Authority v. Fluffy's Pancake House, Ltd. (1978) 409 N.Y.S.2d 20, the issue presented was virtually the same as herein, that is, whether the service of "complimentary" glasses of wine with meals served in a restaurant constituted a "sale" within the New York Alcoholic Beverage Control Law, thus requiring a liquor license. Sale was defined as "any transfer, exchange or barter in any manner or by any means whatsoever for a consideration, . . .' (emphasis added)." The Appellate Division of the New York Supreme Court concluded that it was. The court reasoned:

"As noted in the opinion of Mr. Justice Monteleone, in granting a preliminary injunction in this instant case,

'Clearly, a patron who receives "complimentary" wine with his dinner is, by the purchase of his meal, giving consideration for the beverage served. The Friday night "special" dinner is a more flagrant violation in that the liquor is not disguised as "complimentary" but is included in the total consideration paid by a patron for the evening's dining and entertainment.'

See also section 23038.1 re convention centers and auditoriums and section 23038.2 re ball parks, stadiums and coliseums. Section 24045.1 provides for a temporary on-sale general license that is on a daily basis for special groups such as political parties, fraternal organizations and religious groups.

4 85-701 "We would agree that since 'complimentary' wine is available only to those who order a meal, the patron who receives such 'complimentary' wine with his meal has given consideration in the form of payment for the meal."

And in another New York case a similar conclusion was reached with respect to the service of "free" alcoholic drinks in the case, New York State Liquor Authority v. Sutton Social Club, Inc. aka, Top Floor Discotheque (1978) 93 Misc.2d 1024. In that case a so-called social club charged its "members" and their guests an admission charge of from $6 to $10. This admission charge entitled the admittees to "free" alcoholic beverages, as well as backgammon and dancing at the individual's option. The court reasoned, in concluding that such conduct by the unlicensed club violated the state liquor laws, citing Fluffy's Pancake House, supra:

"Within the definition of the term 'sale', as set forth in subdivision 28 of section 3 of the Alcoholic Beverage Control Law, and the meaning and prohibition of subdivision 1 of section 100 of that same law, corporate respondent is engaged in the sale of liquor on its premises as if money was being exchanged for liquor at the bar instead of for liquor and entertainment at the door. A 'sale' by any other name would still smell from the alcoholic beverages involved. By any reasonable interpretation of the broad, but clear language of the statutory enactments herein, it must be held in law, logic and as a matter of practicality that alcoholic beverages are being sold to all who desire them for monetary consideration as a part of the price of admission to the Club (see Alcoholic Beverage Control Law, § 160).

"If any contrary interpretation were adopted—and if this obvious subterfuge were afforded legitimacy—there would be little need for alcoholic beverage licensing provisions of any type since such provisions and attendant controls could then readily be bypassed. This could be accomplished by the simple expedient of not-for-profit incorporation of a social club with nightly dues payments covering the cost of free liquor and other amenities. The next logical (or illogical) step—for any group to take to avoid the mandatory constrictions of legislative licensing—would be merely to charge $6 to $10 per night for the pretzels and potato chips and to give away all of the beer, wine and liquor desired (see New York State Liq. Auth. v. Fluffy's Pancake House, NYLJ, July 22, 1977, p. 13, col. 5)."

And the court then finally observed:

5 85-701 "If this does not constitute a 'sale' within the meaning of the statute, then ' are here again.' By virtue of this determination, however, they are not here yet. . . ."

And finally with respect to out-of-state authority, and surprisingly by virtue of the vintage of the case, the Court in Commonwealth v. Albert W. Worchester (1879) 126 Mass. 256, reached a similar conclusion in the context of its nuisance laws. "[T]he defendant [was charged] with keeping and maintaining a dwelling-house in Concord, used for the illegal sale and illegal keeping of intoxicating liquors, the same being a common nuisance". The witnesses paid for meals at the defendant's dwelling house where" . . . the table was spread, and they had chowder, beef, chicken, etc., and the wine and beer bottles were on the table." The trial judge refused a proffered instruction which would have exonerated the defendant,5 and gave the following instruction:

". . . [I[f meals were furnished and, as part of such meals, intoxicating liquors were furnished, and the payment for the meals included payment for the liquors, that would constitute an illegal sale within the provisions of the statute."

The Supreme Judicial Court of Massachusetts, in affirming the lower court, stated:

"The instructions given by the presiding judge were correct. The purchase of a meal includes all the articles that go to make up the meal. It is wholly immaterial that no specific price is attached to those articles separately. If the meal included intoxicating liquors, the purchase of the meal would be a purchase of the liquors. It would be immaterial that other articles were included in the purchase, and all were charged in one collective price. If a dealer should undertake to present a glass of liquor to everybody who should purchase some small article of him, it would be considered a mere evasion of the law prohibiting the unlicensed sale of intoxicating

5 The proffered instruction was: "If the jury find upon the evidence that the defendant kept the house described in the complaint as his dwelling-house, and that occasionally parties of young men resorted there for meals of victuals only, that would not constitute such house a nuisance within the meaning of the law, although the defendant furnished with such meals wine or other intoxicating liquors, if the parties simply paid for the meals so furnished, and no bar for the sale of liquor was kept on the premises, and no liquor was sold or furnished except as aforesaid with the meals." Interestingly, this would appear to be similar to what we would expect a typical "bed and breakfast" establishment to urge in defense of their supplying "complimentary" drinks or wine.

6 85-701 liquors. As to the instruction which the court was requested to give, if its natural import was not that there was no sale of liquors in this case, if they were furnished as incident to and a part of the meal, and thus paid for, it was at least equivocal, and liable to be so understood by the jury. The judge, therefore, was not bound to give it in the language suggested to him. The instruction which he did give was correct, and contained all that the defendant was entitled to upon that subject." (Emphasis added.)

In short, the consideration for the alcoholic beverages would be included within the "basic charge". As the court noted in 1879 in Massachusetts, which reasoning we believe is as valid today, "It is wholly immaterial that no specific price is attached to those articles separately." Therefore, the furnishing of the beverages, although denominated "complimentary", are for a consideration and constitute a sale within the meaning of California's Alcoholic Beverage Control Act.

To hold otherwise, we believe, would thwart the purposes of the alcoholic beverages control laws in our state, that is, to promote temperance, to control the number and location of licensed premises and to insure the proper background investigation of those who are to be permitted to sell such beverages.

The conclusion we reach herein is also supported by California cases in several other fields where so-called "free" items have been or are distributed to customers. These are in the distribution of trading stamps and lottery materials. Although many of us can recall the advertisements proclaiming "Free S&H Green Stamps With Every Purchase", the courts in California did not agree with such a characterization. As the court held in Food and Grocery Bureau v. Garfield (1942) 20 Cal.2d 228, 234.

"Finally, the respondent urges, the appellant advertises his stamp as 'free', and this circumstance, it is maintained, is inconsistent with a legitimate cash discount plan. But the advertisement upon which this claim is made shows that the stamps are given 'free' only upon the making of a ten-cent purchase from the appellant. The purchase is the prerequisite to obtaining the stamp and furnishes the consideration for the distribution of stamps to those customers asking for them." (Emphasis added).

(See also Weco Prod. Co. v. Mid-City Etc. Drug Stores (1942) 55 Cal.App.2d 684).

And in the lottery field, so-called "free" lottery tickets have been held to be actually for a consideration in some circumstances. Unless the commercial enterprise that distributes the lottery tickets does so widely and indiscriminately to noncustomers, the cost of the movie or other item or service purchased has been held to constitute the

7 85-701 consideration for the "free" lottery tickets. (See People v. Gonzales (1944) 62 Cal.App.2d 274; compare Cal. Gas Retailers v. Regal Petroleum Corp. (1958) 50 Cal.2d 844).

In short, and apropos to the question presented herein, "There is no free lunch." Nor are the "complimentary drinks" at issue herein "free".

The conclusion reached on these facts does not mean that there is no such thing as a genuine gift. Even the proprietor of a commercial establishment might, in specific situations, be able to carry the burden of showing that a complimentary beverage was not provided for compensation. Under these facts, however, where alcoholic beverages are provided to the consumer of a business or service and a charge is imposed for the business or service, the provider will be deemed to have sold the beverage to the consumer, thereby necessitating an alcoholic beverage license.

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